World Economy · Learn with evidence
Apply the inflation lesson to a two-year basket and distinguish disinflation, deflation and purchasing power.
Free guided activity · 30 minutes · Ages 12 and up
Before you start: Multiply by a percentage; a calculator is welcome.
Learning goal: Explain why slowing positive inflation does not reverse earlier price increases.
Preparation: Paper, pencil and calculator. Allow one shared screen for the linked tool, or use the printed exercise offline. Fictional figures are for practice.
A price level describes the cost of a basket. Inflation describes its rate of change. Disinflation is a slower inflation rate; deflation is a falling overall price level. These terms answer different questions.
Read the inflation explanation →When income rises more slowly than your basket, your purchasing power falls. Households buy different things, so an official average will not precisely match every household. Keep the basket quantities fixed when isolating price changes.
Try the purchasing-power lab →Record the country, price index, comparison period and whether a rate is monthly or annual. A lower annual rate does not establish that this month’s prices fell. Check the source release before comparing two headlines.
Find another headline explanation →Fictional fixed basket: $200 initially. Its price rises 10% in year one and 3% in year two. Weekly income starts at $500 and rises 5% in each year. No changes to basket quantities are assumed.
What does the basket cost after each year?
Did prices fall when inflation fell from 10% to 3%?
Did income keep pace over both years?
Exit ticket: Explain one result in your own words and name an assumption that could change it.
Try the worksheet first. These answers explain the reasoning, not just the result.
$220 after year one and $226.60 after year two. The second increase applies to $220, not the original $200.
No. Prices rose more slowly. This is disinflation; the basket is 13.3% more expensive than initially.
Income becomes $525, then $551.25: a 10.25% increase. Prices rose 13.3%, so basket purchasing power fell. The real-income ratio is 1.1025 ÷ 1.133, about 0.973, a decline of about 2.7%.
Next week: explain the difference between a cheaper item and economy-wide deflation using a new example.
For a younger learner, work through the first calculation together. For an extension, change one assumption and defend the new conclusion.
See the related optional paid teaching pack →The complete activity above is free. The linked pack is a separate resource; this activity does not change its contents.
World Economy’s original exercises apply the concepts in these sources. Reviewed September 13, 2026. This is educational background, not a live event report.